Survey of Emerging Market Conditions
Most Recent Quarterly Report
Executive Summary & Conclusions
Optimism for the Florida real estate markets tapered off slightly in the second quarter due to uncertainty with rising interest rates. UF’s Commercial Real Estate Sentiment Index, an outlook on our respondents’ own businesses, declined for the first time in a year. The investment outlook for Florida also declined for the first time in almost two years.
The main reason for the decline is the sharp increase in interest rates over the past quarter. The 10 year treasury yield has jump 66 basis points since the start of the second quarter driving up interest rates on loans for all property types. Respondents are concerned that a continued increase in interest rates will drive cap rates and investor yield requirements higher which will impact the viability of many deals as rent hasn’t grown enough to handle the increased yields.
In addition to the rise in interest rates, Florida’s employment growth slowed as unemployment rates in the major markets increased in the second quarter by almost a full percentage point. This helped drive the UF BEBR consumer sentiment index down from its recent high of 81 to 78 at the end of June. The decline is being driven in part by younger Floridians who have higher unemployment rate than older Floridians. Additionally, we are seeing a decline in income as salaries are not keeping up with inflation. The combination of lower wages and increasing interest rates points to a sluggish outlook for real estate, both residential and commercial.
One area that continues to be strong is tourism. According to Visit Florida, tourism increased in the second quarter by 2.6% from the previous year with 23.4 million visitors. This is coming off an impressive 5.7% increase in the first quarter. The increases are continuing to drive investment in real estate in this sector across the state leading to an improved hospitality segment.
The optimism from previous quarters has waned and will continue to be depressed as interest rates continue to rise. Additionally, big issues are coming to head in Washington over the coming quarters which could have a big impact on the economy and real estate in particular including another debt ceiling debate in the fourth quarter. These issues will dampen enthusiasm in the real estate markets for the remainder of the year.
Results by Florida Market
Past Quarterly Reports:
- -select report-
- Q4 2012 (February)
- Q3 2012 (November)
- Q2 2012 (August)
- Q1 2012 (May)
- Q4 2011 (February)
- Q3 2011 (November)
- Q2 2011 (August)
- Q4 2010 (February)
- Q3 2010 (October)
- Q2 2010 (July)
- Q1 2010 (April)
- Q4 2009 (January)
- Q3 2009 (October)
- Q2 2009 (July)
- Q1 2009 (May)
- Q4 2008 (December)
- Q3 2008 (September)
- Q2 2008 (April)
- Q1 2008 (January)
- Q4 2007 (December)
- Q3 2007 (August)
- Q2 2007 (April)
- Q1 2007 (January)
- Q4 2006 (October)
- Q3 2006 (July)
About the Survey
The Survey of Emerging Market Conditions targets the experienced leadership and professionals of Florida's real estate development and investment community to gain insights and market intelligence on matters of fundamental importance to real estate practitioners and policy-makers across Florida.
The Survey of Emerging Market Conditions is the only Florida-centered survey of leaders and professional advisors in the real estate industry. It analyzes prospective data to produce extensive forecasting information pertinent to 37 of the state's 67 counties. The survey is administered by the Bergstrom Center for Real Estate Studies at the University of Florida.
With the highly fragmented nature of real estate, no survey can encompass all aspects of the real estate industry. To face this challenge, the Survey of Emerging Market Conditions employs a quarterly sounding from multiple groups of market leaders and professional groups advising them.
It is important to understand the unique strengths and limitations of the Survey of Emerging Market Conditions.
Like virtually all surveys of investment real estate markets, this survey gathers opinion. Thus, it distills complex judgments, and amounts to a carefully controlled and structured conversation with truly qualified real estate experts. The survey asks questions carefully designed to avoid ambiguities, a major problem in collecting complex information.
The survey screens respondents at two levels of refinement to assure truly expert opinions. First, only persons with established real estate credentials are invited to participate. Second, each respondent is asked to respond only for those localities and property types where he or she is an active expert.
The result is that all the data collected can be regarded as authoritative, no matter how small the sample of responses for a property type-locality "cell." (We maintain a minimum of at least four respondents for any market cell to guard against response mistakes.) In short, even data from the least actively covered markets that we report have value as an additional expert opinion. In the more actively reported market cells, our data represent an extraordinary consensus of the experts.
Survey results are anecdotal findings about required returns and investment objectives of owners and investors contemplating acquisitions or deciding about the timing of dispositions. Therefore the survey is a measure of current and prospective market perceptions, including the confidence levels exhibited by leading real estate professionals and market participants. In other words, the Survey of Emerging Market Conditions is a report of anticipated returns, business outlook and other forecasting views, rather than an analysis of actual or historical performance. The most valuable benefit for many may be interpretation of survey results over time to better comprehend market trends and shifts.
Glossary of Survey Terms
Cap Rates: Capitalization rates are the ratio of expected net operating income to actual transaction price. It is regarded as important that cap rates be based on actual transaction price rather than an appraised value.
Yield: For the Survey of Emerging Market Conditions, yield is before income taxes (pre-tax), and without debt financing (unlevered). It is the rate of interest that discounts all future property cash flows back to a present value equal to the original equity investment (acquisition cost).
Absorption Rates: Refers to the number of additional units of housing, office space, etc. that can be sold or leased in a given market area over a given period of time. For the purposes of the Survey of Emerging Market Conditions, the exact time interval, market area and measure of units are not of concern. Respondents are asked only to comment on the direction of change in the absorption rate.
Occupancy Rate: Two notions of occupancy rate are the percentage of a building's leasable space that is occupied and the percentage of a building's leasable space that is under lease. (Note that some leased space may not be occupied.) For the purposes of the Survey of Emerging Market Conditions either notion is acceptable since we are asking about direction of change in occupancy rather than levels of occupancy.
Rental Rate: The meaning of rental rate is extremely complex. In residential, it can include furnishings and utilities, or it can be net of all furnishings and utilities. With commercial property it can range from full gross rent, including janitorial services to "triple net," which excludes all operating expenses. Fortunately, for the Survey of Emerging Market Conditions this variation is a minimal issue. The survey asks respondents only about the qualitative direction of change in rental rates, however defined. Generally, the direction of change will not depend on the definition of rent.
Property: A property is an individual asset that may include one or a collection of buildings (e.g., a business park or apartment complex). Parks, complexes, and neighboring buildings are considered one property.
The Survey of Emerging Market Conditions covers five broad property types: residential (single family, condominium and apartments), office, flex/industrial, retail and hospitality. Each property type is further divided into two or more sub-types.
- Industrial: Primarily for industrial use, such as distribution, manufacturing or warehouse facilities. Flex refers to properties with a mix of office and industrial uses. Usually a single story, Flex space may be research facilities, technology/telecom facilities, or similar uses.
- Office: Primarily used for office space. Office properties may have a small retail component (especially in CBDs on the street level), or a parking garage, or other attached uses.
- Apartments: Includes all rental residential properties with more than four units.
- Single Family: Includes single family detached, individually owned residences in structures with up to four units, and individually owned townhouses.
- Condominiums: For the Survey of Emerging Market Conditions, includes all individually owned residences in structures with more than four units, and with facilities owned in common. Note that this excludes many townhouses.
- Retail: The Survey of Emerging Market Conditions utilizes the ICSC's definitions of retail assets as either shopping centers (strip or enclosed malls) or free-standing stores.
- Condo Conversion: Property that was purchased with intent of converting individual units to condominium ownership.
Major Florida Markets
The Survey of Emerging Market Conditions aggregates 37 of Florida's 67 counties into the top 13 Florida markets. Counties comprising each major Florida market as follows:
- Miami-Dade County
- Broward County
- Palm Beach County
- Treasure Coast (Indian River, Martin & St. Lucie Counties)
- Southwest Coast - Southwest Florida area (Charlotte, Lee & Collier Counties)
- East Central Coast - Daytona Beach, Melbourne-Titusville-Palm Bay (Volusia & Brevard Counties)
- Orlando - Central Florida area (Seminole, Osceola, Lake & Orange Counties)
- Lakeland-Winter Haven (Polk County)
- Tampa-St. Petersburg - Tampa Bay area (Hillsborough, Pasco, Hernando & Pinellas Counties)
- Sarasota-Bradenton (Manatee & Sarasota Counties)
- Jacksonville - Jacksonville (Duval, Nassau, St. Johns, Baker & Clay Counties)
- North Central (Alachua, Marion & Gilchrist Counties)
- Northwest Florida - Pensacola, Ft. Walton Beach, Panama City, Tallahassee (Escambia, Santa Rosa, Okaloosa, Walton, Bay, Leon & Gadsden Counties)
Lead Researcher and Analyst:
Dr. Wayne R. Archer, Director
University of Florida Bergstrom Center for Real Estate Studies
Professor of Real Estate and Wachovia Fellow,
Warrington College of Business Administration
Survey Research Analyst & Designer:
Scott Richards, M.A., Research Analyst,
UF Bureau of Economic & Business Research
Survey Website Design & Support:
ITSP Web, Data & Communication Services,
Warrington College of Business Administration
Graduate Student Production Assistants:
Ben Scheick, PhD student
Patrick Boileau, MSRE Class of 2007
Dan Carlson, MSRE Class of 2007